“The bankruptcy and administration proceedings were prompted by the fact that the F M Group in general and T&N in particular have faced a huge quantity of personal injury claims arising from exposure to asbestos, both in the UK and in the US, in products manufactured or distributed by the Group. The Chapter 11 filings and the administrations have been sought to obtain the benefit of statutory stays while a plan of re-organisation under Chapter 11 and, possibly, a section 425 scheme of arrangement in the UK are formulated. A Cross-Border Insolvency Protocol, dated as of1 October 2001 , has been entered into with a view to co-ordinating the US and UK insolvency proceedings and assisting towards the development of an integrated re-organisation plan for all of the companies involved. The overall objective is to ring-fence the liabilities for the claims and the assets available to meet them so that solvency can be established and the Group can continue to trade. In the course of argument, I was told that, prior to any statutory stays coming into effect, payments totalling between£350 and£370 million had been made in satisfaction of claims.”
“Subject to the terms and conditions of this Policy, the Insurer will indemnify the Policyholder during the Period of Insurance for any and all Ultimate Net Loss in excess of the Retained Limit in connection with Asbestos Claims. The total amount the Insurer will pay for Ultimate Net Loss is limited as described in SECTION II, LIMIT OF INSURANCE.”
“‘Asbestos Claim’ means any written demand or civil proceeding with respect to which the Policyholder or any Subsidiary is alleged to be or may be responsible (whether or not the demand or civil proceeding in question is made or brought, or could be made or brought, directly against the Policyholder or any Subsidiary) by whomever made or brought anywhere in the world and in whatever procedural posture such demand or civil proceeding may arise (including any judicial or administrative proceeding or arbitral or other alternative dispute resolution proceeding) seeking monetary relief (whether or not such relief is the only relief sought) for Personal Injury alleged to have been caused in whole or in part by the Asbestos Hazard.”
“‘Ultimate Net Loss’ means: a. All sums paid in fact by the Policyholder or any Subsidiary as cash or the purchase cost or (if lower) the fair market value of in kind disbursements (whether legal liability exists or not) in settlement of any Asbestos Claims, including but not limited to actual and consequential damages, costs and expenses allowed or awarded, and punitive, exemplary and multiple damages; b. Plus all sums paid in fact by the Policyholder or any Subsidiary as cash or the purchase cost or (if lower) the fair market value of in kind disbursements in satisfaction of a judgement on any Asbestos Claims, including but not limited to actual and consequential damages, costs and expenses allowed or awarded, and punitive, exemplary and multiple damages to the extent covered herein; c. Plus all reasonable and proper amounts paid in fact by the Policyholder or any Subsidiary as cash or the purchase cost or (if lower) the fair market value of in kind disbursements (whether legal liability exists or not) for costs, fees and expenses that are attributable to the defence or disposition of one or more Asbestos Claims, or the pursuit of subrogation rights, including but not limited to costs, fees and expenses of the Claims Handling Designee (other than salaries and other overhead costs of the Policyholder or its Subsidiaries) plaintiffs costs, lawyers, paralegals, investigators, witnesses, experts and other persons for the litigation, adjustment and investigation of such claims; d. Less amounts received in fact by or on behalf of the Policyholder or any Subsidiary as cash or the fair market value of in kind disbursements from third parties as subrogation and other recoveries, salvages and claims upon other insurance . . . ; e. Amounts recovered under any one paragraph of this Definition cannot also be recovered under any other paragraph of this Definition; f. The Policyholder shall be conclusively presumed to have suffered an Ultimate Net Loss in respect of any Ultimate Net Loss actually suffered by any Subsidiary. . . .”
“An ‘Insolvency Event’ shall occur in relation to the Policyholder or any Subsidiary if: a. it is unable to pay its debts as they fall due; b. (applying generally accepted accounting principles applicable in its country of incorporation) the value of its assets is less than the amount of its liabilities, taking account of contingent and prospective liabilities; c. a resolution is proposed or action commenced for its liquidation or winding up otherwise than purely for the purposes of a solvent reconstruction or amalgamation; d. any creditor becomes immediately entitled to appoint a receiver (including an administrative receiver or receiver and manager) over the whole or any material part of its assets or undertaking; e. it enters into discussions with its creditors generally or with a class of them with a view to agreeing a composition or rescheduling of its debts or commences upon a voluntary arrangement in relation to its debts; f. a petition is presented for it to be placed in administration pursuant toPart II of the Insolvency Act 1986 (as from time to time amended, re-enacted or replaced); or g. any matter similar or analogous to any of those described in paragraphs (c), (d) or (f) occurs in relation to it under the laws of any relevant jurisdiction.”
“Subject as provided herein, the Cedant shall cede and each Reinsurer shall severally (but not jointly) reinsure… (33 1/3%) of Ultimate Net Loss in excess of the Retained Limit, each as defined in the Asbestos Liability Policy numbered CZ 7/96 ASB/096 (hereinafter referred to as the ‘Policy’) between the original insured T&N Plc (hereinafter called the ‘Policyholder’), payable from time to time by the Cedant to the Policyholder pursuant to the terms and conditions of the Policy”
“The Limit of Cover of each Reinsurer hereunder is£166,666,666.66 . . . which is the maximum in the aggregate each Reinsurer may be liable to pay hereunder in any circumstances whatsoever”
“Subject as expressly provided herein and as a condition of this agreement, the Cedant hereby . . . irrevocably transfers to the Reinsurers all of its rights and powers pursuant to the Policy including (without limitation) those in SECTION III CONDITIONS, CLAUSE 4, POLICYHOLDER’S CLAIMS HANDLING – PARAGRAPH f, of the Policy.”
“ Notwithstanding anything contained to the contrary, it is a condition of this Agreement that: . . . (b) the Cedant, having transferred its rights and powers under the Policy to the Reinsurers, shall not approve or effect the termination, appointment or replacement of a Claims Handling Designee (as defined in the Policy) . . . . . . (f) if the Cedant shall become entitled to the full, exclusive, and absolute authority, discretion and control of the administration and defence and disposition (including but not limited to settlement) of all Asbestos Claims, including the appointment of one or more Claims Handling Designees pursuant to SECTION III –CONDITIONS, Clause 4 f. of the Policy, that authority, discretion and control shall be exercised by a majority of the Reinsurers pursuant to the transfer in Article 4 hereof, and the Cedant shall provide all such assistance as the Reinsurers or a majority of them may reasonably require . . . in respect thereof.”
“The historical reason for the passing of the Act of 1930 was to remedy a particular form of injustice which had become apparent from two then recent decisions of the Court of Appeal. The first of these two decisions was In re Harrington Motor Co Ltd, Ex parte Chaplin[1928] 1 Ch 105 . In that case a person injured in a road accident had obtained judgment for damages against a company, but had been unable to enforce the judgment before the company went into liquidation. The company’s motor insurers paid the amount of the judgment to the liquidator, who then treated the injured person as an unsecured creditor with no special interest in the insurance monies. It was held by the Court of Appeal that the liquidator had been right to deal with the matter in that way. The second decision was Hood’s Trustees v Southern Union General Insurance Co of Australasia Ltd[1928] 1 Ch 793 . In that case H, being insured by the defendant company against liability to third parties, negligently injured C in a road accident. C subsequently brought an action against H for damages, but before he could obtain judgment, H was made bankrupt and the official receiver was appointed trustee in the bankruptcy. The trustee informed the defendant company in reply to a question that he did not intend to take any part in C’s action against H. H later purported, for an agreed sum much below the value of the claim to release the defendant company from its obligation under the policy to indemnify him in respect of any judgment obtained against him by C. Shortly afterwards C obtained judgment against H for damages for the personal injuries sustained by him. Subsequently H was made bankrupt a second time and another trustee in bankruptcy was appointed. It was held by Tomlin J that the benefit of the indemnity under H’s policy of insurance vested in the trustee in the first bankruptcy, notwithstanding that C’s claim, being one in respect of tort for which judgment was not obtained until after the commencement of the first bankruptcy, was not itself provable in bankruptcy. That decision was subsequently affirmed by the Court of Appeal. These two decisions showed that, even where an injured person obtained a judgment for damages against a wrongdoer, if the wrongdoer being a company went into liquidation, or being an individual became bankrupt, and the judgment had not by then been enforced by execution the monies payable by way of indemnity under any policy of insurance by which the wrongdoer was insured against liability to third parties, did not go solely to benefit the injured person but were payable to the liquidator or trustee in bankruptcy of the wrongdoer for distribution pari passu among all the unsecured creditors. This was recognised to be plainly unjust, and the Act of 1930 was passed to remedy that injustice. . . .”
“. . . Under the Act the rights of the insured against the insurer are transferred to the third party on (in the case of an insured company) the making of a winding up order etc.: see s.1(b) of the Act. It follows from this that a statutory transfer can take place before the obligation of the insurer to pay arises i.e. before the liability of the insured has been established. In such an event, since it is clear from the authorities that the third party is to be put in no better position than the insured, the third party does not obtain the right to immediate payment until the liability of the insured is established. . . . . . . That right [the right of the third party to immediate payment by the insurers] only arises when, in each case, the claim is established, just as that right, while owned by the insured, would also arise only when the particular claim in question was established. It is only when that right arises that the insurers come under the correlative obligation to make payment. To my mind it follows that as each claim is established (whether before or after the statutory assignment), the right to payment arises and thus the amount of available insurance is in effect diminished, so that when it is exhausted later established claims have no right to an indemnity. . . .”
“In my judgment, the treatment by the Policy of claims handling expenses is not intended to change depending on who, as between T&N and the insurer, happens at any given moment to be in charge of claims handling or on whom, as between T&N (or any Subsidiary) and the insurer, the actual claims handler (for example a solicitor) happens to look to for payment of his charges. The clear intent of the Policy is that these expenses, insofar as they are reasonable and proper in amount (see paragraph (c) of the definition of the Ultimate Net Loss), are to form part of the Ultimate Net Loss.”
“. . . The intention has been to raise a series of discrete questions, the outcome of which turns on the true construction of the Policy and, to a lesser extent, the Reinsurance Agreement and on issues of law rather than on the investigation and determination of disputed issues of fact. Their determination, I am told, is material to the carrying forward of the proposed re-organisation plan for the F M Group. The issues can be grouped under four main headings: (1) those concerned with the impact of theThird Parties (Rights Against Insurers) Act 1930 (as amended) (“the 1930 Act”) on the provisions of the Policy relating to the transfer of claims handling rights (issues 1 to 9); (2) those concerned with the party on whom the cost of claims handling falls after any transfer of claims handling rights (issues 10 to 13); (3) the priority in its administration of any liability of T&N for the cost of claims handling after any transfer of claims handling rights (issue 14); and (4) whether a contribution claim falls within the Policy (issue 15).”
“The essential point in contention here is whether, as the reinsurers contend, section 1(3) applies only to alterations to the rights against the insurer transferred to the third party by section 1(1) in respect of the insured’s liability to that third party or whether, as the administrators contend, it is of wider application and, if it is, whether clause 4f gives rise to an alteration of rights within the purview of that subsection.”
“a petition is presented for [the Policyholder or any Subsidiary] to be placed in administration pursuant toPart II of the Insolvency Act 1986 . . . ”
“42. In my judgment, subsection 1(3) [of the 1930 Act] recognises that there may be terms in the contract of insurance, whether or not they are to be found in the rights under the contract which are transferred to the third party by section 1(1), which are intended to have effect upon the happening of one of the statutory insolvency events and which, if allowed to have effect, will impair the full enjoyment by the third party of the rights transferred to him by section 1(1) ; or, to echo the approach of Slade J in The Allobrogia [ReAllobrogiaSteamshipCorporation[1979] 1 Lloyd’s Rep 190 , 198], which will have the effect, directly or indirectly, of prejudicing or reducing those rights. The question is whether clause 4f, which undoubtedly provides for an alteration of rights under the Policy, is such a term. 43. Leaving aside whether, in any event, one or more of the statutory insolvency events has occurred (with which later issues are concerned), does a transfer of claims handling rights from T&N to the reinsurers before the Retained Limit has been reached and at a time, therefore, when the burden of any disposal of third party claims resulting in a payment will be carried by T&N (or its creditors) and not by the insurers (whether Curzon or the reinsurers) constitute an alteration in the enjoyment by the third party of his rights against the insurers by prejudicing or reducing those rights in some material way? (I say “material” to make clear that any de minimis diminution in rights may be ignored.) 44. I cannot think that it does. Although, as between T&N (acting by its administrators) and the reinsurers, the question who has the claims handling rights before the Retained Limit is reached when, on any view, there is a transfer of those rights to the reinsurers, may be a matter of importance, I am unable to see why it should prejudice or reduce in any material way the rights transferred to the third party.”
“The effect of s.1(3) thus, according to its express terms, is to invalidate any provision which is contained in a relevant contract of insurance and purports, directly or indirectly, to avoid such contract or to alter the rights of the parties thereto upon the happening to the insured of any of the events specified in s.1(1), which gives rise to the statutory transfer to the third party under the contract. The manifest purpose of s.1(3) is to make certain that, in any of the events specified in s.1(1), the third party shall be able to take the full benefit of the rights against the insurer, unaltered and undiminished by any provision in the contract which is designed directly or indirectly to cancel, prejudice or reduce such rights in the event of one or more of such events taking place. . . .”
“The use of the phrase ‘directly or indirectly’ in s.1(3) shows that provision in a relevant contract can fall foul of s.1(3), even though it does not expressly and in terms purport to avoid the contract or alter the rights of the parties upon the happening to the insured of any of the relevant events. The effect of the word ‘indirectly’ is in my judgment that any provision in such a contract which has the substantial effect of avoiding a contract or altering the rights of the parties upon the happening to the insured of any such events is invalidated, even though the contract does not in terms so provide.”
“What is affected or altered by the insolvency or winding up is the ability to enjoy the rights, but not the rights themselves, which remain the same before and after the event, save that upon the winding up the rights are transferred to the third party.”
“(1) Its primary purpose was to remedy the injustice highlighted in Re Harrington (In re Harrington Motor Co Ltd[1928] Ch 105 ). Had the 1930 Act governed that case the pedestrian would have been able to enforce his claim directly against the insurer (and he could have done so even if the insurer had already paid the liquidator). But had the Act stopped there it would have been open to the parties to agree that the right to indemnity should cease on bankruptcy or winding up, so that there would be no rights in the insured to be transferred to the injured third party. It was accordingly necessary for the Act to invalidate avoidance clauses of this kind, and that was duly done. . . . (7) As Mr Justice Slade (as he then was) put it in The Allabrogia [1979] 1 Lloyd’s Rep. 190 at p.198: ‘The manifest purpose of s.1(3) is to make certain that, in any of the events specified in s.1(1), the third party shall be able to take the full benefit of the rights against the insurer, unaltered and undiminished by any provision in the contract which is designed directly or indirectly to cancel, prejudice or reduce such rights in the event of one or more of such events taking place.’ Section 1(3) accordingly provides that the insurance contract shall be of no effect in so far as it purports directly or indirectly to avoid the contract or alter the rights of the parties under it upon the happening to the insured of any of the specified events. This seems to me to be an almost standard provision prohibiting parties from, in effect, contracting out of a statutory requirement. The application of the sub-section requires one to construe the insurance contract between insurer and insured to ascertain whether the rights of the contracting parties are determined or altered under the contract on the happening of one of the specified events. (8) . . . The question posed by Mr Justice Slade in The Allobrogia (sup) (at p.198) was whether the provision under review has the substantial effect of avoiding the contract between the member and the club or altering the rights of the parties upon the happening to the member of any of the events mentioned in s.1(1) of the 1930 Act, and I did not understand any of the parties before us to challenge that approach. In my opinion it is correct.” ‘The manifest purpose of s.1(3) is to make certain that, in any of the events specified in s.1(1), the third party shall be able to take the full benefit of the rights against the insurer, unaltered and undiminished by any provision in the contract which is designed directly or indirectly to cancel, prejudice or reduce such rights in the event of one or more of such events taking place.’ 70. The judgments in the Fanti and The Padre Island (No 2) were handed down in this Court on30 November 1988 . Shortly thereafter the House of Lords heard and determined the appeal in Bradley v Eagle Star Insurance Co Ltd[1989] AC 957 , to which I have already referred. The issue in that appeal was whether an employee of a company, since dissolved, could bring proceedings against its liability insurers under section 1(1) of the 1930 Act. It was held by a majority (Lord Keith of Kinkel, Lord Brandon of Oakbrook, Lord Oliver of Aylmerton and Lord Jauncey of Tulichettle, Lord Templeman dissenting) that she could not do so; on the ground that the dissolution of the employer company had made it impossible to establish (in accordance with the terms of the liability insurance) the existence or amount of the insured employer’s liability to the employee – so no right of indemnity as between the insurer and the insured had arisen (or could arise) which was capable of being the subject of a statutory transfer under the statute. 71. In the course of his speech in Bradley v Eagle Star Insurance (with which the other members of the majority agreed) Lord Brandon (ibid, 967F-968D) explained the purpose for which the 1930 Act had been passed in terms which I have already set out. That explanation echoes the observations of Lord Justice Bingham in The Fanti and The Padre Island (No 2), at the first of his eight numbered points. Lord Brandon went on to say this (ibid, 968E): [The 1930 Act] was not passed to remedy any injustice which might arise from other matters; in particular it was not passed to remedy any injustice which might arise as a result of the dissolution of a company making it impossible to establish the existence and amount of the liability of such company to a third party. That kind of situation was not in my view, contemplated by the legislature at all.” 72. The speeches in the House of Lords in Bradley v Eagle Star Insurance were delivered in March 1989. The conjoined appeals in The Fanti and The Padre Island (No 2) went to the House of Lords in the following year. The issues before the House – and a succinct analysis of the judgments in the courts below – are set out in the speech of Lord Brandon,[1991] 2 AC 1 , 25G-27F. He identified three questions: “First, immediately before the members were ordered to be wound up, what rights, if any, did the members have against the clubs under their contracts of insurance in respect of the liabilities which the members had previously incurred to the third parties? Secondly, did the ‘pay to be paid’ provisions, being terms of the contracts of insurance made between the members and the clubs, purport, whether directly or indirectly, to avoid those contracts, or to alter the rights of the parties under them, upon the members being ordered to be wound up, so as to render those provisions to that extent of no effect under section 1(3) of the Act of 1930? Thirdly, having regard to the answers to the first and second questions, what rights against the clubs, if any, were transferred from the members to the third parties upon the members being ordered to be wound up?”
“It is evident that certain of the judges in the courts below (I refer in particular to Staughton J in the Fanti[1987] 2 Lloyd’s Rep 299 , 310, and to Stuart Smith LJ in the Court of Appeal[1989] 1 Lloyd’s Rep 239 , 258-259) were much affected by what they perceived to be the unfortunate consequences which would follow if the cargo owners were denied a direct action against the clubs. Indeed Stuart-Smith LJ went so far as to say that, if the argument of the clubs were to prevail, any liability insurer could drive a coach and horses through the Act by the simple device of incorporating a pay to be paid clause in the policy. To my mind, this statement both exaggerates the danger and ignores the policy underlying the Act of 1930. In his judgment, Bingham LJ, at pp 247-248, summarised in eight points his general approach to the construction of the Act. With that admirable summary I respectfully agree. In it, he stressed that the primary purpose of the Act was to remedy the injustice highlighted in particular in In re Harrington Motor Co Ltd, Ex parte Chaplin[1928] 1 Ch 105 , in which it was held that payment by an insurance company to an insolvent insured of a sum due under a liability policy, fell to be distributed among the creditors of the insured, of whom the injured party was only one: see Bradley v Eagle Star Insurance Co Ltd[1989] AC 957 , per Lord Brandon of Oakbrook. He also stressed that under the Act there were to be transferred to the third party only such rights as the insured had under the contract of insurance, subject always to section 1(3) of the Act which in effect prevented contracting out of the statutory transfer. This being the statutory scheme, it is very difficult to see how it could be said that a condition of prior payment would drive a coach and horses through the Act; for the Act was not directed to giving the third party greater rights than the insured had under the contract of insurance. . . .”
“There may conceivably be cases where there is loss of life or personal injury, arising from default on the part of the shipowners or their employees, in which insolvency of the shipowners could have the effect that a P&I Club in which the relevant ship was entered could, in theory, decline to make payment direct to the injured party or his next of kin.”
“The manifest purpose of s.1(3) is to make certain that, in any of the events specified in s.1(1), the third party shall be able to take the full benefit of the rights against the insurer, unaltered and undiminished by any provision in the contract which is designed directly or indirectly to cancel, prejudice or reduce such rights in the event of one or more of such events taking place.”
“I cannot think that it does. Although, as between T&N (acting by its administrators) and the reinsurers, the question who has the claims handling rights before the Retained Limit is reached when, on any view, there is a transfer of those rights to the reinsurers, may be a matter of importance, I am unable to see why it should prejudice or reduce in any material way the rights transferred to the third party.”
“. . . the treatment by the Policy of claims handling expenses is not intended to change depending on who, as between T&N and the insurer, happens at any given moment to be in charge of claims handling . . . The clear intent of the Policy is that these expenses . . . are to form part of the Ultimate Net Loss.”
“It is a striking feature of the administrators’ position that, for so long as claims handling remains with T&N, claims handling expenses form part of the Ultimate Net Loss and count towards the Retained Limit, following which they are covered by the indemnity up to the£500 million Limit of Insurance. The expenses will continue to be so treated, notwithstanding the occurrence of any event causing a transfer of claims handling rights to the insurer, if the insurer surrenders back to T&N its rights under the clause, which it is free at its absolute discretion to do, or, even if claims handling rights remain with the insurer, if T&N (or a Subsidiary) makes payment of them. . . . Since a contractual insolvency event which is intended to trigger a transfer of rights under clause 4f can occur at any time and is a matter over which the insurer has no control, the possibility exists that, long before the Retained Limit is reached, the insurer may find, unless he hands back the exercise of such rights, that the claims handling expenses are to be ignored in calculating the Ultimate Net Loss and that it has to pick up full liability for them. In short, depending on whether a transfer of claims handling rights under 4f is triggered and how claims handling is thereafter carried out, the insurer may find himself having to pick up a potentially unlimited liability over and above the£500 million cover provided by the Policy.”
“Thus, should the solicitors instructed to defend the claim choose to look to T&N for payment of their charges (and it is common ground that, without more, they would be entitled to do so) notwithstanding that, in the exercise of the claims handling rights transferred to them, the insurer has instructed the solicitors in question to act, the administrators accept that the charges so paid would form part of the Ultimate Net Loss . . .”
“Even though instructed by the insurers, the solicitors are solicitors of the insured. See Groom v Crocker[1939] 1KB 194 at 202-203. The insured remains legally responsible for the solicitors’ charges, notwithstanding that the solicitors may also be entitled to look to the insurer for payment; see Adams v London Improved Motor Coach Builders Ltd[1921] 1KB 495 at 501. Indeed the insured is regarded as having incurred the solicitors’ fees even though they have in fact been paid by the insurer: see Lewis v Avery (No 2)[1973] 1WLR 510 at 513. This shows that the exercise of claims handling carries, by itself, no implication that the cost of doing so falls outside the limit of cover under the Policy.”
“When once it is established that the solicitors were acting for the plaintiff with his knowledge and assent, it seems to me that he became liable to the solicitors for costs, and that liability would not be excluded merely because the Union also undertook to pay the costs. It is necessary to go further and prove that there was a bargain, either between the Union and the solicitors, or between the plaintiff and the solicitors, that under no circumstances was the plaintiff to be liable for costs.”
“[The provisions of the policy] do not in terms refer to the position of solicitors, but they clearly entitle the insurers to nominate a solicitor to act in the conduct of the proceedings to which they relate. The duty of the solicitor to the assured for whom he is to act cannot of course be the same as that which arises in the ordinary case of solicitor and client, where the client is entitled to require the solicitor to act according to his own instructions. The whole object and usefulness of these provisions would be defeated if the assured were entitled to interfere with the conduct of the proceedings in that way. The assured in my opinion is not entitled to complain of anything done by the solicitor upon the instructions, express or implied, of the insurers, provided it falls within the class of things which insurers are, as between themselves and the assured, entitled to do under the terms of the policy when properly construed. . . . . . . The right given to the insurers [under the policy] is to have control of proceedings in which they and the assured have a common interest – the assured because he is the defendant and the insurers because they are contractually bound to indemnify him. Each is interested in seeing that any judgment to be recovered against the assured shall be for as small a sum as possible. . . . The effect of the provisions in question is, I think, to give to the insurers the right to decide upon the proper tactics to pursue in the conduct of the action, provided that they do so in what they bona fide consider to be the common interest of themselves and their assured. . . .”
“[The appellant] is the person who is legally responsible vis à vis the other party; but he is indemnified by those standing behind him. That is sufficient to satisfy the requirement that those costs were ‘incurred by him’.”
“. . . 3. Where underwriters instruct a solicitor to conduct the defence, they thereby create the relationship of solicitor and client between the solicitor and the assured – Groom v Crocker at pp 202-202. 4. The normal consequence of this is that the assured becomes liable to pay the solicitor’s costs, even if the underwriters were also liable for those costs: Adams v London Improved Motor Coach Builders Ltd,[1921] 1 KB 495 at pp 501 and 504. 5. Those costs are properly deemed to be incurred by the assured, even if they are funded by underwriters: Davies v Taylor (No 2)[1974] AC 225 , at p 230; Lewis v Avery (No 2),[1973] 1 WLR 510 at p 513. . . .”
“ [Insurers] agree to the extent and in the manner hereinafter provided to indemnify the Assured against all sums which the Assured shall become legally liable to pay as damages and/or costs and/or legal expenses but not exceeding the sum stated in item 3 of the Schedule (such sum to include costs and expenses incurred with the written consent of the Insurers in defence or settlement of any claim) in respect of claims which are first made against the Assured during the period specified in the Schedule arising from . . .” “In respect of all losses notified by the Assured or claims first made against the Assured during the period of Insurance, the aggregate amount specified in Item 4 of the Schedule [the excess] which amount shall be inclusive of damages and claimants costs and expenses, and costs and expenses incurred with the written consent of the Insurers in the defence or settlement of any claim, shall be borne by the Assured at their own risk and the Insurers shall only be liable to indemnify the Assured in excess of such amount.”
“1. All defence costs are ‘incurred by’ the assured, whether defence solicitors are instructed and/or paid by underwriters or by the assured. 2. If underwriters fund defence costs which should properly be borne by the assured under general condition 1, the assured is liable to reimburse underwriters in respect of this expenditure. Underwriters can set off this liability against their indemnity obligations under the policy. 3. Subject to 2, underwriters are liable to indemnify the assured for defence costs incurred with their written consent, up to the limit of cover. 4. The requirement for written consent can be waived by underwriters. 5. Subject to 2, when underwriters fund defence costs they thereby discharge their liability to indemnify the assured against those costs, so that the payments made encroach upon the limit of cover.”
“6. If underwriters fund defence costs of an assured which fall within the excess, the assured will be under an obligation to reimburse underwriters. This obligation arises under the terms of general condition 1, or alternatively under principles of restitution”
“The decision in that case, so far as relevant to these issues, turned on different contractual terms and, insofar as it rested on a general principle, is open to question having regard to what was said about the availability of a remedy in restitution where it is sought, by recourse to restitutionary principles, to redistribute risks for which provision has been made, either explicitly or implicitly, under the applicable contract. See Pan ocean Shipping Co Ltd v Credit Creditcorp Ltd[1994] 1WLR 161 at 164 and 165 (Lord Goff of Chieveley).”
“(3) Where at any time a person ceases to be an administrator, the following subsections apply. (4) His remuneration and any expenses properly incurred by him shall be charged on and paid out of any property of the company which is in his custody or under his control at that time in priority to any security to which section 15(1) then applies. (5) Any sums payable in respect of debts or liabilities incurred, while he was administrator, under contracts entered into . . . by him or a predecessor of his in the carrying out of his or the predecessor’s functions shall be charged on and paid out of any such property as is mentioned in subsection (4) in priority to any charge arising under that subsection.”
“The effective question is whether, as the reinsurers contend but the administrators dispute, such claims handling expenses are, or are to be treated as, expenses of the administration and, assuming that sufficient assets [are] available, are recoverable as such or whether, as the administrators contend but the reinsurers dispute, they merely rank for payment as ordinary unsecured liabilities of T&N with the prospect that they may not be fully recovered.”
“[1] The reinsurers submit that section 19(5) of the 1986 Act applies to such payments because, although on the assumptions applicable to this issue the contract with the particular claims handler has been entered into by the reinsurers (and not by the administrators), the contract has been entered into on T&N’s behalf and, being a contract made during the administration, should be treated as duly authorised by the administrators acting on T&N’s behalf. The fact that under the Policy (which is a pre-administration contract) the reinsurers have a right of reimbursement by T&N does not prevent the application of section 19(5) (which is confined to payments in respect of debts and liabilities under post-administration contracts entered into by an administrator on the company’s behalf) to the post-administration contract with the claims handler. [2] Alternatively, they submit that reimbursement of the expenses by the administrators is in the interests of T&N’s creditors since it is in their interests that T&N’s liabilities should be determined in a proper and not excessive amount both before and after the Retained Limit has been reached. It is in their interests that the available cover under the Policy should be preserved for genuine claims. It is in their interests that payment of what is due to the reinsurers is made, since a failure to effect reimbursement may jeopardise the very existence of the Policy which is T&N’s largest asset. The reality, they submit, is that the liability to reimburse is a liability that falls on the administrators acting as agents of T&N. The expenses in question are, therefore, to be regarded as having been incurred by the administrators under section 19(4).”
“I cannot agree with either submission. It is important to appreciate the nature of the claims handling expenses with which the issue is concerned. They are payments made by the reinsurers in discharge of amounts owed to claims handlers (primarily solicitors I imagine) in defending asbestos claims under contracts with claims handlers entered into post-administration bythe reinsurers on T&N’s behalf. The fact that, additionally to T&N, the reinsurers may be subject to a separate personal liability to the particular claims handler for his expenses is immaterial. The payments so made are not in discharge of any contracts entered into by the administrators. Nor are they expenses which have been incurred by the administrators. Indeed, the issue arises precisely because they are neither. The fact that the expenditure in question may be in the interests of T&N’s creditors and that the administrators could or might well have incurred the self-same expenses if they, rather than the reinsurers, had been instructing the claims handlers in question does not justify treating the expenses as if they were made under contracts entered into by the administrators or as if they were incurred by the administrators. The plain fact is that, in law, they are neither. It follows, in my view, that neither section 19(5) nor section 19(4) is in point.”
“(4) Upon a transfer under subsection (1) or subsection (2) of this section, the insurer shall, subject to the provisions of section three of this Act, be under the same liability to the third party as he would have been under to the insured, but - (a) if the liability of the insurer to the insured exceeds the liability of the insured to the third party, nothing in this Act shall affect the rights of the insured against the insurer in respect of the excess; and (b) if the liability of the insurer to the insured is less than the liability of the insured to the third party, nothing in this Act shall affect the rights of the third party against the insured in respect of the balance.” (a) if the liability of the insurer to the insured exceeds the liability of the insured to the third party, nothing in this Act shall affect the rights of the insured against the insurer in respect of the excess; and (b) if the liability of the insurer to the insured is less than the liability of the insured to the third party, nothing in this Act shall affect the rights of the third party against the insured in respect of the balance.”
“As section 1(4)(b) makes clear, the insured remains liable to the third party, at least to the extent that the third party’s rights against the insured exceed the rights which are the subject of the statutory transfer. But, as it seems to me, Parliament plainly intended that, following the statutory transfer to the third party of the insured’s rights against the insurer in respect of the third party’s claim, the responsibility for meeting that claim should (as between insurer and insured) lie with the insurer. If that were not so, (i) there would be a risk of double recovery if the third party were to sue both insurer and insured and (ii) there would be a risk that the insured would be liable to the third party in respect of a claim in which he no longer had any right of indemnity under the policy – because his right had been transferred to the third party by the statute. It would, of course, be a strange case in which the third party chose to pursue the insolvent insured rather than the solvent insurer. But the question whether (and for what) the third party could prove in the insolvency of the insured would have to be addressed if the insurer were also insolvent.”